Universal American Corp. v. Partners Healthcare Solutions Holdings, L.P.
61 F. Supp. 3d 391
D. Del.2014Background
- Universal American Corp. merged with APS to form APSLP; Universal alleged post-merger performance failed due to an organized fraud scheme.
- APS provided case management, care coordination, quality/utilization review, and behavioral health services to state Medicaid programs.
- GTCR and related funds/partners controlled APS; Katz and Scott sat on APS board; Vaccaro and McDonough were APS executives.
- Universal asserted nine counts including securities fraud, common law fraud, aiding/abetting, unjust enrichment.
- Defendants moved to dismiss all counts; court granted with leave to amend on several counts.
- Court reserved questions on contract survival periods and certain breach provisions for later proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Section 10(b) securities fraud sufficiency | Universal alleges misstatements with scienter | Defendants argue lack of particularity and reliance defenses | Count I dismissed for lack of particularity with leave to amend |
| Control person liability under Section 20(a) | GTCR defendants controlled APS and aided fraud | Need for culpable participation and control partner proof | Section 20(a) claim against Katz dismissed with leave to amend; GTCR claims survive subject to amendment |
| Common law fraud—omissions and anti-reliance | Omissions may be actionable despite anti-reliance clause | Anti-reliance provision bars extra-contractual reliance | Dismissal of non-AR representations; amendment permitted focusing on omissions under TransDigm framework |
| Breach of contract timing and scope | Survival/Sections 3.16 and 3.17 timely breaches | Disputed facts; contract interpretation needed | Denial of motion to dismiss breach claims for further development at summary judgment stage |
| Aiding/abetting and conspiracy; unjust enrichment | Derivatively pleadable with underlying fraud; equitable claims | Dependent on surviving common law fraud | Aiding/abetting and conspiracy counts dismissed with leave to amend; unjust enrichment allowed in alternative |
Key Cases Cited
- AES v. Dow Chemical Co., 325 F.3d 174 (3d Cir. 2003) (anti-reliance waivers cannot bar 10(b) claims under §29(a))
- Abry Partners v. F&W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006) (fraud claims based on merger representations supported by contract documents)
- H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129 (Del. Ch. 2003) (sophisticated parties may contractually limit reliance on information)
- In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198 (3d Cir. 2002) (Rule 9(b) particularity and factual background requirement)
- Belmont v. MB Inv. Partners, Inc., 708 F.3d 470 (3d Cir. 2013) (culpable participation required for §20(a) secondary liability)
- In re Digital Island Sec. Litig., 223 F. Supp. 2d 546 (D. Del. 2002) (illustrates particularity in pleading control/culpable participation)